• Chiara Gelmini, Business Practice Manager at Appway


• 11.05.2017 10:15 am
consumer protection

After the economic crisis shook the world in 2008, a wave of consumer protection initiatives hit the global financial industry like a tsunami. More than ever before, it became crucial to protect customers from bad investments, losses, and illegal conduct perpetrated by financial institutions.

Since then, several consumer protection initiatives have been instated throughout the world, including in the European Economic Area (EEA). Three of the main initiatives in the EEA are MiFID I – II and PRIIPS in the EU and FinSA in Switzerland.

Let’s see how these three initiatives protect consumers:

1) MiFID

MiFID I came into effect across the EU in 2007. It aimed to harmonize the EU market for investment services and activities, boost competition, and increase consumer protection.

It promoted suitability analyses of all financial services clients (during the onboarding process and periodically for existing clientele), proper documentation standards on investment products, and transactional transparency.

MiFID II expands the scope of MiFID I and should be applicable throughout the EU by January 2018. Introduced to make financial markets more efficient, resilient, and transparent, it pays significant attention to over-the-counter (OTC) trade and to enhancing the protection of end customers.

2) PRIIPS

The PRIIPs (Packaged Retail and Insurance-based Investment Product) regulation is also expected to be applicable throughout the EU by January 2018. Its goal is to rebuild retail customers’ trust in financial markets.

It plans to rebuild this trust by ensuring that retail investors are able to confidently analyze and compare PRIIPS. PRIIPs stakeholders must produce and maintain KIDs (Key Information Documents) on each PRIIP. KIDs are highly standardized pre-sales documents containing crucial details about a specific PRIIP, such as the cost structure and risk/reward profile.

3) FinSA

The Financial Services Act (FinSA) aims to regulate financial services in Switzerland. Its main objectives are to integrate MiFID into Swiss law (while maintaining Swiss standards), granting greater protection to end customers, and introduce accuracy, diligence, and transparency requirements for financial suppliers. FinSA isn’t yet in force and is currently under review by the Swiss Parliament.

From these three examples, it’s evident that regulators intend to enforce business models that are aligned with high consumer protection standards. After almost a decade of economic regression, what was thought to be a cyclical phenomenon is instead clearly a structural one marked by slow growth, low interest rates, and uncertainty. Therefore, it’s essential that banks rethink their business models; what worked 12 years ago is no longer viable.

The goal is to find a balance between profitability and compliance.

Finding this balance can be achieved by placing the customer at the core of the banks’ USP (Unique Selling Proposition). Acting in the clients’ best interest, putting them first, and building strategies around them isn’t just crucial, it’s mandatory. Consumer protection is an opportunity to better serve banking clients and gain their trust and loyalty, and it’s the first step to building scalable growth in the long-term.

Now that you’ve gotten an overview of these three key EEA initiatives, you can dive even deeper by watching the recorded webinar, MiFID II and the Financial Services: Friends or Enemies?